British Business Bank report reveals equity deals slowdown across the South West

By Nick Batten on 11 March, 2024

The British Business Bank’s Small Business Finance Markets 2023/24 report, published on 1st March, shows a continuing fall in small business equity investment across the South West, in line with the national picture.

In the first three quarters of 2023, 82 equity deals were completed in the region, a 33 per cent drop compared to the equivalent period the year before, and in line with a national fall of 29 per cent.

The value of deals in the region also fell, by 51 per cent to £187.5m in the same period, slightly less than the national fall of 53 per cent.

But despite these falls, equity investment is still high by historic standards and during the period was 8 per cent higher in the UK than the equivalent period in 2020. And the South West was still ranked in the top five regions outside London for the volume of deals, accounting for 5 per cent by number in the UK. London still dominates with 46 per cent of all deals in Q1-Q3 2023.

Last year, the British Business Bank launched its £200 million South West Investment Fund to increase the availability and supply of finance to all parts of the region. The fund offers loans ranging from £25,000 to £2 million and equity investments up to £5 million and is part of the Bank’s commitment to fostering sustainable economic growth by supporting businesses across the South West.

The national picture

Smaller businesses raised £6.5bn of equity finance over the first three quarters of 2023, 53 per cent less than during the same period in 2022. After two exceptional years, this brings such investment to around the level it was in 2020, still the fourth-highest year on record. While there was a sharp decline in activity in the second half of 2022, investment now appears to be stabilising at around £2bn per quarter in 2023.

Later stages of the UK equity finance market have continued to experience the largest reductions in investment. Growth-stage investment in the first three quarters of 2023 was £2.4bn, 65 per cent lower than the same period in 2022. Venture and seed stage investment fell by 43 per cent and 31per cent in 2023, respectively.

The growth stage was the main driver of market expansion over 2021 and the first half of 2022, and subsequently has also experienced the largest drop in both percentage and absolute terms since market conditions have worsened from the second half of 2022 onwards.

UK equity finance has matured over the last decade, becoming deeper and with a greater range of investors able to support companies at all stages of their development.

Smaller business use of finance increases in 2023

The use of external finance by smaller businesses saw a consistent rise over the year, growing from 41 per cent in Q1 to 50 per cent in Q3 2023. The rate of this increase indicates a growing need for finance to support cash flows, with a greater reliance on credit card (up 8 per cent points) and overdraft finance (up 6 per cent points). Businesses in the South West saw a 11 per cent point increase in credit card use and 7 per cent increase in overdraft use between Q1 2023 and Q2 2023, well in excess of the national increase of 4 per cent points and 2 per cent points respectively. Working capital was the main reason for seeking finance for 58 per cent of smaller businesses in 2023, up from 53 per cent the year before.

Commenting on the latest Small Business Finance report, Steve Conibear, UK Network Director, South West at the British Business Bank, said, “Despite the falls we have seen in number and value of equity deals across the region from the unusual highs of 2021 and 2022, this has been in line with national trends and overall the market is still exceeding pre-pandemic levels. With the launch of the British Business Bank’s South West Investment Fund last year we have significantly increased the availability of equity finance in the region and we are already seeing the difference this is making in the local market.”

To read the Small Business Finance Markets report visit: https://www.british-business-bank.co.uk/research/small-business-finance-markets-report-2024/

Pictured above: Steve Conibear, UK Network Director, South West at the British Business Bank